Q4 Outlook for Solars (Part II): A Look At The Worst Case

In our article published on Monday, we examined six of the eleven solars and how our worst case assumption for module ASPs would impact Q4 EPS results. Today we will go over the remaining five solars.

Although this article deals with the bear side of solars, it is my hope that solars will somehow pull out of this long running bear market. With the huge declines on Monday, we had posted a hopeful article published on Tuesday, "An Important Inflection Point for Solars."

It should be noted that both our best case and worst case assumptions are simply reasonable best and worst case. A lot of bears out there think that we might hit $1.00 or even worse. Just judging by the deceleration in weekly spot price declines, we think that $1.05 is an acceptable worst case number for Q4.

Q4 EPS Estimates Compared to the Street Estimates

Stock

Our Q4 EST

Street EST

% DIFF

CSIQ

-0.67

0.26

-356

CSUN

-0.68

-0.15

-352

DQ

0.20

0.28

-28

HSOL

-0.28

-0.02

Big

JASO

-0.03

0.11

-124

Click to enlarge

Similar to Monday's article, these results are sobering and not conducive to rising stock prices. If everything remained static, all five companies could post large negative earnings surprises.

CSIQ

CSIQ

0.13

0.16

-0.04

-0.67

-0.41

Click to enlarge

* Quarterly results plus full year EPS (Q1 and Q2 are actuals)

Under the worst case scenario, CSIQ could post a loss of 41 cents for the year and if conditions remained the same for 2012, they could post a similar loss for next year.

CSUN

CSUN

0.09

-0.42

-0.26

-0.68

-1.27

Click to enlarge

Although I have not looked closely at CSUN, they could be in trouble by mid next year if ASPs trend below $1.05. On the bright side, Q3 and Q4 could look better for 2012 even if ASPs remain at $1.05.

DQ

DQ

0.99

0.73

0.45

0.20

2.37

Click to enlarge

Although DQ will look pretty good for 2011, they are faced with the potential for further decreases in poly prices for 2012. Since they are primarily a poly producer, this is not good. Our spreadsheets indicate that 2012 EPS will be substantially less than 2011. In DQ's defense, they may expand poly capacity from 4,300 MT YE 2011 to 12,000MT YE 2012. This could provide a substantial boost to earnings for 2013.

HSOL

HSOL

0.22

-0.12

-0.02

-0.28

-0.20

Click to enlarge

If ASP remains at $1.05 for 2012, quarterly losses could continue into Q1 and Q2 of 2012. They could show minor profits going into Q3 and Q4 of 2012.

JASO

JASO

0.41

-0.22

0.11

-0.03

0.27

Click to enlarge

JASO is of interest because they are heavily over-weighted for cell production. Much of their fortunes will rest on cell pricing for Q4 of this year and for 2012. It seems they made a tactical error in 2010, deciding on expanding cell production from 1.8 GW to 3.0 GW for YE 2011. They will have only 800 MW of module capacity.

Summary

We have tortured the readers over the past few weeks with endless projections for Q4. The heavy readership is gratifying. We have laid out the worst case and the best case for Q4. These are the book-ends for our two articles for next week dealing with the most likely case.

Just judging from the comment section, many solar investors are in a pretty bad mood. We all want good news but at the same time we should look at the different ASP outcomes solars may be facing over the coming quarters.

Although the past two days of stock price action has been very positive, we should be mindful of two drags in the short term:

As mentioned in the previous article, over the next six weeks, investors will have to negotiate potentially devastating minefields in the form of revised guidance from the Q2 conference calls. Just as an example, for the last quarter, to my great dismay, LDK blew up the whole year in one stunning guidance revision.

Even if these two points are negative to solars over the next few weeks, it is possible that they will continue to rise for a while as the stock prices have been so badly beaten for much of this year. If this is the case, then perhaps by then, modules prices may start to rise.